An Exploratory Inquiry into the Psychological Biases in Financial Investment Behavior Evidence from Pakistani Financial Markets

Abstract

Purpose: This research aims to explore the psychological biases in the investment behavior of Pakistani investors, which refers to the natural inclination of investors towards specific financial products based on certain perceptions developed through information or news relating to the issuer of financial products Design/Methodology/Approach: A sample of twelve actively participating investors were selected in this research contacted through telephone in which the conversations were tape-recorded with the consent of the interviewee. It was then transcribed and coded into Ms. Word, or themes were developed. Findings: Thematic analysis was conducted over the responses received; the results suggest that due to lack of training, knowledge relating to an investment in financial products, the behavior of investors is highly biased; partly either because of their association in the form of employment with issuing authorities or because of the news or information floated relating to financial products of the various companies. Implications/Originality/Value: The study has many practical implications; the financial managers and consultants can design financial management behavior practical learning approach to reduce biases. Also, stock stockbrokers, investors identify such biases and reduce their impact. Furthermore, this study highlights the philosophical paradigm through ontological and epistemological understanding.

Keywords

• Psychological Biases
• Market Capitalization
• Mental Accounting
• Cognitive Dissonance